Mister Dark was released when the mercenary duo of Freddy and Mouse were plotting a fort that Freddy used to work at. Due to the sheer amount of gold and other treasures surrounding it the thought that it contained something even more precious and Mouse convinced Freddy to use his axe to cut through the chains that wrapped around the stone box and sealed it. As such, Mister Dark was released.
Mister Dark is an immensely powerful and influential being. When he was first released from the stone case imprisoning him & draining him of his power he awakened the evil seeds in all the children of Earth.
During a dialogue between Gepetto and Frau Totenkinder he revealed that he had his sorcerers captured powerful beings and drained them of power. One of these beings had been released, and that coincided with the Mister Dark's release.
We know that Mister Dark was used to power the witching cloak, and due to this fact he desires to "punish" those that not only used & made it. He then undoes the magic that the Fables had borrowed from the cloak, unbinding almost all of the spells that the witches had used to create their home.
The Mundane World
Following the trail of magic back to Fabletown, the Dark Man began to create a new home for himself upon the ruins of the former manor. Little by little, he began to use his magic to lure in and kill unsuspecting mundies and turn them into his "witherling" slaves. At first, the Fables have no idea what the Dark Man is up to since any attempt at reconnaissance ended in failure, but eventually, with the help of the stealthy Maddy, the Fables begin to see an insidious plan unravel.
All of the mundies that had been captured up until that point had had contact with the Fables. Also, the Dark Man was selectively capturing skilled laborers to help him construct a large hotel. His plans seemed to hint at drawing in as many people as possible for him to feed off of or otherwise toy with. However, his plans were stopped by the return of Frau Totenkinder (now calling herself Bellflower). Knowing that a power like the Dark Man could not be killed, she attempted to trap him as he had once been in the stone box. Eventually, she used a spell that trapped him inside of gold, which he had a sort of allergy to, temporarily binding him.
The plan, too good to be true, eventually failed and all of the Fables left for Haven, the magical kingdom of Flycatcher. All except for Nurse Sprat, who has agreed to play Judas in return for beauty, love, and revenge. Mr. Dark was killed when the Mr. North brought him up into the North Wind's own realm of elemental ice and wind. There, Mr. North entered his Casket of Primordial Winds (a suicide mechanism kept in case he got tired of this life, since nothing much could harm him) and took Mr. Dark with him, killing them both.
Dead or Imprisoned?
In Inherit the Wind, Winter had found herself in frozen wasteland in a realm of the North Wind. There she saw the casket of the Primordial Winds and almost opened it but was stopped by Belleflower and Dunster Happ. Belleflower explained in doing it may release some dark forces. Hinting that perhaps Mr. Dark and North are not really dead, but its a theory no one would like to test out of fear of bringing him back.
Powers and Abilities
The Dark Man has displayed a variety of abilities of a magical nature. Aside from the typical abilities to spell cast, the Dark Man has powers that spring from the fear of others. Since he is the embodiment of that force, he is able to use an enemy's fear to strengthen himself and bypass any defenses that he or she might have erected. One of his chief abilities is being able to turn living beings into "witherlings"--decayed minions that do his bidding. When a living being comes close enough to him, the Dark Man is able to disintegrate their flesh, leaving only the bones behind. He then takes the teeth of the creature, ingests them, and spits them out one at a time. From each tooth the Dark Man is able to create a zombie-like slave until that witherling has been exhausted. He has the power to consume the teeth of humans and, by spitting them up one at a time, summoning the spirit of the owner of said tooth to serve him. He can do this once per tooth, so he can generally do this a maximum of thirty two times (Less if the person in question had poor oral hygiene).